News and Insights

The Bank of England has granted access to the UK's RTGS (Real Time Gross Settlement) payments system to financial tech firms, allowing for increased competition with the largest banks in the country.

Intentions had been identified in May of this year, but the Bank of England published a more detailed plan as well as the framework to make this a reality on Wednesday. The move is especially poignant as it allows smaller competitors to compete in the big leagues and with the intention of evening out the banking sectors playing field.

The changes will allow new financial tech firms who offer a range of services, including automatic saving account apps, prepaid cash cards and other prepaid online or mobile accounts, to have access to its RTGS payments system. This is further extended to remittance firms, which will allow faster overseas payments, as well as including payments through foreign exchange services.

The proposals comes at a time where many more people are using their smartphones to pay for goods and services. A large number of people now manage their bills through specific mobile apps, transfer money to friends and family and are physically using their mobile to pay via Android or Apple Pay. With the increased flexibility and inter connectivity these services have provided, users also expect faster money transfer times.

In a statement regarding the changes, Bank of England Governor, Mark Carney, said:”I am delighted that the Bank of England, the Financial Conduct Authority and the Treasury are working together to stimulate competition and innovation in payment services by widening access to the UK’s payment systems to non-bank payment service providers… this should support financial stability through greater diversity and risk-reducing payment technologies.”

The Bank of England said the proposed changes are, in practice, scheduled to become effective in 2018 after the necessary legislative changes are finished. Once implemented, the changes will enable new PSPs (payments services providers) to compete with banks on more equal terms.

At present, PSPs use a faster payments system called Clearing House Automated Payment System (CHAPS), which is owned by larger banks such as Barclays, Lloyds, HSBC and RBS. CHAPS is an electronic bank-to-bank technology which allows payments to be made on the same day, so long as the instructions are received before 4.25pm.

The Bank of England said that by reducing the need to depend on their competitors for access to their payment systems, new non-bank financial tech firms will be free to offer a larger, more diverse range of payments services and products.

Alongside this, the revised PSD2 (Payments Services Directive) will also allow smaller financial firms to access, with permission, the banking data of their users, opening up the possibility of offering new and improved products for consumers which in turn could create more competition within the financial sector. This is due to smaller firms being able to implement and offer products and services larger banks currently do not.

Application to access RTGS is now open to any firm, however they will have to demonstrate compliance with this risk management framework.

The Bank of England said that, subject to legislation passing through parliament and coming into force, it would expect the first non-bank or PSPs to have access in 2018.